Abstract

Corporate governance refers to a set of internal policies, rules, and procedures that a company follows on a regular basis to ensure that it operates in a fair, equitable, and appropriate manner for the benefit of the company, its management and its stakeholders. It is almost always thought about in the context of big publically listed companies. However, it is just as important for privately held, small and medium sized businesses to adhere to good corporate governance policies and practices. One of the reasons being their accountability as key economic drivers and job creators in most of the countries (example: in 2009, there were 27.5 million businesses in the United States, according to US Office of Advocacy estimates`1). As businesses grow and stakeholders increase, good corporate governance becomes even more important, as there are many people with vested interests. Yet many small and medium businesses do not necessarily pay attention to the concepts of corporate governance. Most of them do not even have the necessary structure and knowledge organize and implement it.

This Paper discusses how corporate governance applies to small businesses. It explains the mechanisms related to sound corporate governance in big companies, such as well developed and implemented policies, procedures and processes, risk management systems, strategic planning, transparency and disclosure, reporting, employee management systems, etc. and recommends which of these mechanisms may be applicable and effective for small and medium businesses.

As there is a buzz among the businesses that legislation requiring small and medium businesses to adhere to similar if not exact rules on corporate governance as big publically listed companies, is being considered, this Paper shall discuss whether the government should impose its will to the small and medium business environment, or leave it up to the discretion of the businesses.

As a final note, having discussed all of the above, the Paper shall conclude that every company, no matter what size it is, will see the positive effects of implementing the principles of corporate governance.

OECD. (2003). White Paper of Corporate Governance in South Eastern Europe. Stability Pact South East Europe compact for reform, investment, integrity and growth, The South East Corporate Governance Roundtable and the Corporate Affairs Division. Center for Cooperation with Non-members.